U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A No.2
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the fiscal year ended: December 31, 2002
Commission File Number: 0-13984
Creative Bakeries, Inc.
(Name of Small Business Issuer in Its Charter)
New York 13-3832215
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
20 Passaic Avenue, Fairfield, NJ 07004
-------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number: (973) 808-8248
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $.001 per share NASDAQ
Securities registered under Section 12 (g) of the Exchange Act: None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes x No__
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
Issuer's revenue for its most recent fiscal year was $3,318,088. As of December
31, 2002 there were 5,446,750 shares of Company's Common Stock, par value $.001
per share, outstanding. The aggregate market value of the voting stock of the
issuer on December 31, 2002 was approximately 218,000.
Transitional Small Business Disclosure Format (check one):Yes No X
-- ---
CREATIVE BAKERIES, INC.
FORM 10-KSB/A No.2
YEAR ENDED DECEMBER 31, 2002
TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Property 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a vote of Security Holders 5
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters 6
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial
Condition and Plan of Operations 6
Item 8. Financial Statements 8
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure 22
PART III
Item 10. Directors and Executive Officers of the Registrant 22
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management 24
Item 13. Certain Relationships and Related Transactions 25
Item 14. Controls and Procedures 26
Item 15. Reports on Form 8-K and Exhibits 26
SIGNATURES 29
CERTIFICATIONS 30
PART I
ITEM 1. BUSINESS
GENERAL
Creative Bakeries, Inc. ("Creative"), offers a broad line of premium quality
pastries, cakes, pies, cookies and other assorted desserts which are produced at
its baking facility. Such baked goods are marketed and distributed on a
wholesale basis to supermarkets, restaurants, and institutional dining
facilities.
Creative was incorporated in November 1993. The Company's executive offices are
located at 20 Passaic Avenue, Fairfield, NJ 07004 and its telephone number is
(973) 808-8248.
The company had two subsidiaries. The sale of William Greenberg Jr. subsidiary
was completed in November 1998. From the remaining subsidiary known as Batter
Bake - Chatterley (BBC), the company sold the Batter Bake business in December
2001. The Company changed it's name to Brooklyn Cheesecake and Desserts Company
in March 2002.
BUSINESS STRATEGY
The Company's business strategy is comprised of the following:
Institutional/Wholesale: The Company plans to increase its penetration in the
institutional/wholesale food market by expanding its marketing efforts to
restaurants, hotels and corporate dining facilities and by offering its products
to supermarkets on a national basis. The Company plans to expand both its
product line and geographic distribution through the following strategies:
Expand geographic distribution by acquiring new food distributors in the
Connecticut and Philadelphia areas as well as key distributor areas throughout
the United States. To do this, the Company intends to appoint food brokers in
various states to handle sales on a commission-only basis.
Continue to expand the fat-free product line targeting existing customers as
well as new customers; and
Enter into co-packing arrangements whereby the Company would introduce private
label products of other bakery operations.
Kosher Foods. The Company also is seeking to benefit from the growth of the
kosher food industry. According to Prepared Foods, the kosher food industry
generated approximately $33 billion in sales in 1994 and has been growing at a
rate of approximately 15% per annum. The company's Brooklyn Cheesecake and
Desserts Subsidiary has a kosher certification and the Company believes that it
can benefit from the projected growth of this market.
BUSINESS PHILOSOPHY
High Quality Ingredients. The Company believes that developing and maintaining
premium quality products is the key to its future success. The Company uses the
highest quality ingredients in its products including, AA creamy butter, whole
eggs, premium fruits, nuts, and chocolates blended for the Company's unique
recipes. The Company seeks to maintain rigorous standards for freshness,
quality, and consistency.
Customer Service. The Company's goal is to provide its customers with warm,
courteous and efficient service. The Company depends on and enjoys a high rate
of repeat business. The Company believes that the quality of the relationship
between its employees and its customers is critical to its success. The Company
strives to hire and train well-qualified, highly motivated employees committed
to providing superior levels of customer service.
PRODUCTS
Baked Goods
The Brooklyn Cheesecake and Desserts Company Subsidiary markets a full line of
premium quality baked products such as cheese cakes, mousse cakes and tart
shells as well a complete gourmet line of muffins. The Company continues to
develop new products and welcomes customer requests.
Kosher Foods
Kosher foods generally are consumed by persons of the Jewish faith as well as
Muslims, Seven Day Adventists and others who perceive kosher certification as a
seal of purity. Kosher is a biblical term originally used to denote that which
is "fit" and "proper".
The Company's subsidiary has kosher certification and the Company believes that
it can capitalize on the projected growth of this market. The Company believes
that its kosher certifications will enable it to better penetrate certain market
areas. The Company's products are not kosher for Passover.
CUSTOMERS
The Brooklyn Cheesecake and Desserts Company Subsidiary sells its products
through food distributors to hotels, hospitals and institutional feeders such as
corporate caters, restaurants, coffee shops etc. The products are also sold
retail through food distributors and direct to supermarket distribution centers.
INGREDIENTS AND PRINCIPAL SUPPLIERS
The Company seeks to use only the highest quality ingredients available. The
Company has a policy of inspecting all raw ingredients before their intended
use.
The ingredients used by the Company consist primarily of flour, eggs, sugar,
butter and chocolate. All ingredients used by the Company are subject to
substantial price fluctuations. The Company historically has been able to pass
any significant price increases in its ingredients through to its customers.
However, no assurance can be given that the Company will be able to continue
this practice in the future. Any substantial increase in the prices of
ingredients used by the Company could, if not offset by a corresponding increase
in product prices, have a material adverse effect on its business, financial
condition or results of operations. The Company does not believe the loss of any
of its suppliers would have a material adverse effect on its business and
believes that other suppliers could readily provide such products if necessary.
DISTRIBUTION AND MARKETING
The Brooklyn Cheesecake and Desserts Subsidiary bakes all of its products in its
30,000 square foot facility in Fairfield, New Jersey. Although utilization of
the facility varies based on seasonal fluctuation, the facility operates on five
days a week basis. The Company believes that the Brooklyn Cheesecake and
Desserts Company Subsidiary has the capacity to meet future requirements,
including those arising out of the consolidation with the Company. The Brooklyn
Cheesecake and Desserts Company Subsidiary delivers 90% of its products by
common carrier trucks to its institutional/wholesale customers. About 10% of its
customers pick up their orders directly at the bakery and utilize their own
distribution networks.
Historically, the Company has relied upon word-of-mouth and customer
satisfaction to market its products to new customers and to make existing
customers aware of new products.
COMPETITION
The baking industry is a highly competitive and highly fragmented industry. The
Company competes with national, regional and local bakeries as well as
supermarket chains that have in-store bakeries. Many of these competitors are
larger, more established and have greater financial and other resources than the
Company. Competition in both the retail and institutional/wholesale baking
industry is based on product quality, brand name loyalty, price and customer
service.
TRADEMARKS
The JMS Subsidiary has a trademark and design registered with the United States
Patent and Trademark office for The Healthy BakeryTM (US Registration No.
1,644,559). While the Company believes that the trademarks are valid and
enforceable, there can be no assurance as to the degree of protection its
registered trademarks will afford the Company.
GOVERNMENT REGULATION
The Company is subject to numerous state regulations relating to the preparation
and sale of food. It is also subject to federal and state laws governing the
Company's relationship with employees, including minimum wage requirements,
overtime, working and safety conditions, and citizenship requirements. The
failure to obtain or retain required food licenses or to be in compliance with
applicable governmental regulations, or any increase in the minimum wage rate,
employee benefits costs (including costs associated with mandated health
insurance coverage) or other costs associated with employees, could adversely
affect the business, results of operations or financial condition of the
Company.
EMPLOYEES
As of March 26, 2003, the Brooklyn Cheesecake and Desserts Company Subsidiary
together with Creative had approximately 32 full-time employees, of which 30 are
employed in production, and 1 in administration and 1 in an executive position.
The Brooklyn Cheesecake and Desserts Company Subsidiary does not have a union
and the Company believes that it has good relations with its employees.
ITEM 2. PROPERTY
As of March 26, 2003, the Company leases in Fairfield, New Jersey 29,362 square
feet for its baking facilities. The Company believes that its existing lease
will be renewed when it expires in 2004 or alternative properties can be leased
on acceptable terms. The Company believes that its present facilities are well
maintained, in good condition and are suitable for the Company to continue to
operate and meet its production needs in the foreseeable future. The Company is
also considering subcontracting certain of its production requirements.
PLAN OF OPERATION
Future mergers and acquisitions:
The Company continues to seek business in markets it does not currently serve
and is continuing to pursue mergers and acquisition opportunities.
ITEM 3. LEGAL PROCEEDING
There are no pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq Small Cap Market under the
symbol "CBAK" and the Boston Exchange under the Trading symbol "BYK". The
following table sets forth the range of quarterly high and low bid prices, as
reported on the NASDAQ SmallCap Market, during the last two fiscal years through
March 31, 2002.
Period High Low
--------------------------------------------------------------------
FISCAL YEAR 2001:
First Quarter .10 .08
Second Quarter .22 .17
Third Quarter .12 .10
Fourth Quarter .22 .07
Fiscal Year 2002:
First Quarter .40 .20
Second Quarter .25 .09
Third Quarter .07 .07
Fourth Quarter .04 .04
The number of shareholders of record of the Common Stock on March 26, 2003 was
41 excluding 2,631,078 shares of Common Stock held by Cede & Co. The Company
believes that it has in excess of 500 shareholders.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying dividends in the foreseeable future. The payment of future
cash dividends by the Company on its Common Stock will be at the discretion of
the Board of Directors and will depend upon the Company's earnings (if any),
general financial condition, cash flows, capital requirements and other
considerations deemed relevant by the Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
None.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS
GENERAL
Management continues to refine operations and implement controls. Special
emphasis has been placed in ensuring accurate reporting of financial data.
Increasing sales revenues is the most pressing issue. However, funds for
marketing and equipment acquisitions are scarce. The company has a negative cash
flow of $ 70,461 for the year ending December 31, 2002.
Mini Cakes, Cheesecake and pre-portioned gourmet desserts are the categories
which represent the most potential for sales growth. In addition, the company is
exploring marketing several niche health food items. This includes but is not
limited to low carbohydrate desserts. Marketing efforts continue to target both
food service and retail distributors to carry our product lines.
At December 31, 2002 to the extent the Company may have taxable income in future
periods, there is available a net operating loss for federal income tax purposes
of approximately $8,680,450 which can be used to reduce the tax on income up to
that amount through the year 2019.
RESULTS OF OPERATIONS
The Company's consolidated revenues from continuing operations aggregated
$3,318,088 and $3,770,507 for the year-ended December 31, 2002 and 2001
respectively, a decrease of 12%. Sales decreased due to the sale of the batter
business in 2001. The cost of goods sold were $2,893,226 and $3,279,919
respectively, a decrease of 11.8%. Cost of goods sold went down, due to a drop
in sales. Selling, general and administrative expenses were $636,302 and
$767,338 respectively, a decrease of 17%. The decrease was a result of
aggressive cost cutting and product streamlining.
During 2001, the company wrote-off $670,995 of goodwill relating to its
declining batter business, which was sold in December 2001. The company also
recognized a $100,000 gain from that sale of the batter assets in 2001. A
$48,711 settlement of accounts payable also occurred in 2001. There were no
adjustments of this nature in 2002.
Interest expense decreased in 2002 to $2055 from $7492, a decrease of 265%. This
expense includes various bank charges. During 2002, management effectively
maintained its cash accounts and substantially reduced these fees. The result of
not having the 2001 items repeat in 2002 created a loss from continuing
operations of $213,495 in 2002 down from $805,526 in 2001, a decrease of $277%.
Income from discontinued operations increased to $379,722 in 2002 from $18,937
in 2001, an increase of 1905%. The increase was a result of the write off of old
accounts payable related to the WGJ Desserts operation sold in 1998.
The aggregate of these adjustments amounted to net income in 2002 of $166,227
and a loss of $787,589 in 2001, a decrease of 574%.
SEGMENT INFORMATION
Not applicable since retail operations were discontinued.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company's only source of working capital has been the
$8,455,000 received from the issuance of its securities.
As of December 31, 2002, the Company had a negative working capital of $126,326
as compared to a negative working capital of $20,247 at December 31,2001.
Although the Company has previously been successful in obtaining sufficient
capital funds through issuance of common stock and warrants, there can be no
assurance that the Company will be able to do so in the future.
INFLATION AND SEASONALITY:
The Company's revenues are affected by seasons with higher revenues during
holiday seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and
Passover.
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This annual report contains certain forward-looking statements with respect to
the financial condition, results of operations and business of the Company
including statements relating to the cost savings, revenue enhancements and
marketing and other advantages that are expected to be realized from the
Company's plans to restructure and consolidate its operations and grow through
strategic acquisitions. Such forward-looking statements involve certain risks
and uncertainties that could cause actual results to differ materially from
those contemplated by such forward-looking statements. Such risks and
uncertainties include, without limitation: (1) expected cost savings from the
restructured or consolidated operations cannot be fully realized; (2)
difficulties relating to the integration of new businesses that may be acquired;
(3) the impact of competition on revenues and margins; (4) increases in the
costs of ingredients; and (5) other risks and uncertainties as may be detailed
from time to time in the Company's public announcements and Commission filings.
ITEM 8. FINANCIAL STATEMENTS
Report of Zeller Weiss & Kahn, LLP, Independent Auditors
Consolidated balance sheet
Consolidated statement of operations
Consolidated statement of stockholders' equity
Consolidated statement of cash flows
Notes to consolidated financial statements
INDEPENDENT AUDITORS' REPORT
Board of Directors
Creative Bakeries, Inc.
We have audited the accompanying consolidated balance sheet of Creative
Bakeries, Inc. as of December 31, 2002, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years ended December
31, 2002 and 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Creative Bakeries, Inc. as
of December 31, 2002, and the results of its operations and cash flows for the
years ended December 31, 2002 and 2001, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As shown in the
accompanying financial statements, the Company incurred significant losses from
continuing operations for the years ended December 31, 2002 and 2001 and as of
December 31, 2002 has a working capital deficiency in the amount of $126,326,
which raises substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are discussed in
the notes to the financial statements. The accompanying financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
ZELLER WEISS & KAHN, LLP
March 6, 2003
Mountainside, New Jersey
CREATIVE BAKERIES, INC.
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2002
ASSETS
Current assets:
Cash and cash equivalents $ 51,155
Accounts receivable, less allowance for doubtful
accounts of $4,200 185,277
Inventories 190,945
Prepaid expenses 63,768
-----------
Total current assets 491,145
-----------
Property and equipment, net 329,555
-----------
Other assets:
Security deposits 4,714
Tradename and licensing agreements,
net of amortization 128,106
-----------
132,820
$ 953,520
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 459,823
Accrued expenses 67,593
Notes payable, officer 90,055
-----------
Total current liabilities 617,471
-----------
Other liabilities:
Deferred rent 72,600
Net liabilities of discontinued operations
less assets to be disposed of 134,265
-----------
206,865
Stockholders' equity:
Preferred stock $.001 par value, authorized 2,000,000
shares, none issued
Common stock, $.001 par value, authorized 10,000,000
shares, issued and outstanding 5,446,750 shares 5,447
Additional paid in capital 11,346,093
Deficit ( 11,222,356)
Total stockholders' equity 129,184
-----------
$ 953,520
See notes to consolidated financial statements.
CREATIVE BAKERIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
---- ----
Net sales $3,318,088 $3,770,507
Cost of sales 2,893,226 3,279,919
---------- ----------
Gross profit 424,862 490,588
---------- ----------
Selling, general and administrative expenses 636,302 767,338
Loss on impairment of goodwill 670,995
Gain from sale of disposition of assets ( 100,000)
Cancellation of certain liabilities ( 48,711)
Interest expense, net 2,055 7,492
---------- ----------
638,357 1,297,114
---------- ----------
Loss from continuing operations ( 213,495) ( 806,526)
Discontinued operations:
Income from operations of New York
facility 379,722 18,937
---------- ----------
Net income (loss) $ 166,227 ($ 787,589)
========== ==========
Earnings per common share Basic and fully diluted:
Continuing operations ($ 0.04) ($ 0.16)
Discontinued operations $ 0.07 ( 0.01)
---------- ----------
Net income (loss) per share $ 0.03 ($ 0.15)
========== ==========
Weighted average number of common
shares outstanding 5,346,828 5,245,250
========== ==========
See notes to consolidated financial statements.
CREATIVE BAKERIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002 AND 2001
Common stock
Number Additional Total
of Paid in Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity
------ ------ ------- ------- ----- ------
Balance at December 31, 2000 5,245,250 $5,245 $11,364,074 ($10,600,994) ($119,029) $649,296
Treasury stock issued for services ( 23,544) 28,544 5,000
Net loss for the year ended December 31, 2001 ( 787,589) ( 787,589)
----------- --------------------------- -------------- ------------- --------
Balance at December 31, 2001 5,245,250 5,245 11,340,530 ( 11,388,583) ( 90,485) ( 133,293)
Treasury stock issued as employee incentives ( 12,067) 18,317 6,250
Stock issued in exchange for tradename rights 201,500 202 17,630 72,168 90,000
Net income for the year ended December 31, 2002 166,227 166,227
---------------------------------------- ----------------------------- ---------
Balance at December 31, 2002 5,446,750 $5,447 $11,346,093 ($11,222,356)($ 0) $129,184
========= ====== =========== =========== ============ ========
See notes to consolidated financial statements.
CREATIVE BAKERIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001
(Unaudited)
2002 2001
---- ----
Operating activities:
Loss from continuing operations ($213,495) ($806,526)
Adjustments to reconcile loss from
continuing operations to cash used in
continuing operations:
Depreciation and amortization 136,828 164,001
Common stock issued for services 6,250 5,000
Loss on impairment of long-lived asset 670,995
Forgiveness of debt ( 48,711)
Gain on sale of equipment ( 100,000)
Changes in other operating assets and
liabilities from continuing operations:
Accounts receivable 115,247 45,257
Inventory ( 38,367) 88,548
Prepaid expenses 673 ( 22,170)
Security deposits 250 500
Accounts payable 38,352 ( 101,609)
Accrued expenses ( 170,502) ( 23,393)
Deferred rent ( 21,933) ( 21,497)
-------- --------
Net cash used in operating activities ( 146,697) ( 149,605)
Net cash provided by discontinued
operations 1,020 5,343
-------- --------
Net cash used in operating activities ( 145,677) ( 144,262)
-------- --------
Investing activities:
Proceeds from sale of assets 147,578
Purchase of property and equipment ( 85,714) ( 2,500)
-------- --------
Net cash provided by (used in)
investing activities ( 85,714) 145,078
Net cash provided by investing
activities from discontinued operations 70,875 98,750
-------- ---------
Net cash provided by (used in)
investing activities ( 14,839) 243,828
-------- --------
Financing activities:
Proceeds from officers' notes payable 90,055
Payment of debt ( 107,270)
-------- --------
Net cash provided by (used in)
financing activities 90,055 ( 107,270)
-------- --------
Net decrease in cash and cash equivalents ( 70,461) ( 7,704)
Cash and cash equivalents, beginning of year 121,616 129,320
-------- --------
Cash and cash equivalents, end of year $ 51,155 $121,616
======== ========
Supplemental disclosures:
Cash paid during the year for:
Interest:
Continuing operations $ 9,555
======== ========
Discontinued operations $ 0 $ 0
======== ========
See notes to consolidated financial statements.
Net liabilities of WGJ Desserts, Inc. consisted of the following as of December 31, 2002:
Liabilities:
Accounts payable $112,462
Accrued expenses 21,803
--------
134,265
Information relating to discontinued operations for WGJ Desserts and Cafes,
Inc. for the year ended December 31, 2002 and 2001 is as follows:
2002 2001
---- ----
Correction of estimated liabilities
on disposition of assets $ 79,841
Cancellation of indebtedness to former
shareholders and certain other
accounts payable 302,267
Cancellation of accrued expenses - $59,759
Interest income 1,884 9,178
-------- -------
383,992 68,937
Cancellation on sale of trademark rights ( 50,000)
Reduction of note receivable
upon settlement ( 4,270)
-------- -------
Income from discontinued operations $379,722 $18,937
======== =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information Concerning the Board of Directors and Executive Officers
The following table sets forth certain information concerning the Board
of Directors, persons nominated to be elected as directors and executive
officers of the Company:
----------------------------------------- -------------------------------------------- --------------------------
Name of Director or
Executive Officer,
Held with Company For Previous Five Years as Director
----------------------------------------- -------------------------------------------- --------------------------
Ron Schutte, 46 President and Chief Executive Officer, June 1, 2001
Director Aug. 2000 - May 2001
Brooklyn Cheesecake Company
Apr. 1999 - Jul 2000
Crestwood Consulting
Mar 1997 - Mar 1999
Mother's Kitchen
July 1982 - Feb 1997
Pres,Creative Bakers Inc.
Brooklyn, NY
----------------------------------------- -------------------------------------------- --------------------------
Richard Fechtor, 72 Founder of and since 1974 Executive Vice July 11, 1996
Director President of Fechtor, Detwiler & Co.,
Inc., the representative of the
underwriters in the Company's initial
public offering; Director of Vascular
Laboratories since 1989
----------------------------------------- -------------------------------------------- --------------------------
Karen Brenner, 49 President of Fortuna Advisors, Inc., an July 1997
Director investment advisory firm in California
1993 to present; founder
Karen Brenner, 49 and President of Karen Brenner, Registered
Director Investment Advisor, the predecessor to
(continued) Fortuna Advisors, Inc., 1984 to 1993;
Managing Partner of F.C. Partners, a
California limited partnership, April
1996 to present; Director on DDL
Electronics, Inc., a publicly held
company, July 1996 to present;
Director of Krug International Corp.,
a publicly held company, July 1996 to
present.
----------------------------------------- -------------------------------------------- --------------------------
Vincent Bucchimuzzo, 49 Executive for CINN Worldwide January 2003
Director Westchester Venture Group
Univest Partners 1982-1995
----------------------------------------- -------------------------------------------- --------------------------
Anthony Merante, 42 Certified Public Accountant January 2003
Director
----------------------------------------- -------------------------------------------- --------------------------
Mel Foti, 50 VP & Manager Credit & Marketing January 2003
Director National Bank Of Egypt, NY Branch
----------------------------------------- -------------------------------------------- --------------------------
All directors hold office until the next annual meeting of shareholders or until
their successors are elected and qualified. For a period of five years from
October 12, 1995, Fechtor Detwiler & Co., Inc. (the "Representative") has the
right to nominate one member to the Company's Board of Directors. Mr. Fechtor is
the Representative's current nominee to the Board of Directors. There are no
family relationships among any of the directors and executive officers of the
Company.
Officers are appointed by the Board of Directors and serve at the discretion of
the Board.
Section 16(a) Beneficial Ownership Reporting Compliance
The Securities and Exchange Commission (the "Commission") has comprehensive
rules relating to the reporting of securities transactions by directors,
officers and shareholders who beneficially own more than 10% of the Company's
Common Shares (collectively, the "Reporting Persons"). These rules are complex
and difficult to interpret. Based solely on a review of Section 16 reports
received by the Company from Reporting Persons, the Company believes that no
Reporting Person has failed to file a Section 16 report on a timely basis during
the most recent fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directors
Directors of the Company who are not salaried officers receive a fee of $500 for
attending each meeting of the Board of Directors or a committee thereof. In
addition, all directors are reimbursed for their reasonable out-of-pocket
expenses incurred in connection with attending such meetings.
Executive Compensation in 2002
The following table sets forth compensation paid to the Chief Executive Officer
and to executive officers of the Company, excluding those executive officers who
did not receive an annual salary and bonus in excess of $100,000 in the fiscal
year ended December 31, 2001.
--------------------------------------- --------- -------------------- ------------------ --------------------------
Name and Principal Position Year Salary ($) Bonus ($) Other Annual Compensation
------------------ ---- ---------- --------- ------------
--------------------------------------- --------- -------------------- ------------------ --------------------------
Ron Schutte, CEO 2002 $150,000 $0.00 $0.00
--------------------------------------- --------- -------------------- ------------------ --------------------------
No other executive officer received a salary and bonus in excess of $100,000 for
the year ended December 31, 2002. The Company has not granted any stock options,
stock appreciation rights or long-term incentive awards to any executive officer
of the Company since its inception.
Employment Agreements
Simultaneously with the acquisition of Chatterley, the Company entered into
employment agreements with Yona Abrahami and David Abrahami. Their contracts
have since been terminated. These agreements were filed as exhibits B and C
respectively with the Form 8-K/A on November 17, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of Common Shares
beneficially owned, as of the date of this Amendment to the Annual Report, by:
(i) all persons known by the Company to be the beneficial owner of more than 5%
of the outstanding shares of Common Stock; (ii) each director of the Company;
(iii) each of the "named executive officers" as defined under the rules and
regulations of the Securities Act of 1933, as amended; and (iv) all directors
and executive officers of the Company as a group (7 persons):
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Name of Amount of Percent of
Beneficial Owner Beneficial Ownership Beneficial Ownership
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Yona Abrahami(3) 500,000 9.53%
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Philip Grabow(4) 500,000 9.53%
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Richard Fechtor(5) 142,933 2.0%
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Raymond J. McKinstry(6) 50,000
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InterEquity Capital
Partners, L.P.(7) 326,805 7.0%
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Ron Schutte' 350,000
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Executive directors and
officers as a group 1,819,738
Unless otherwise noted, the Company believes that all persons named in the table
have sole voting power with respect to all shares beneficially owned by them. A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from the date hereof upon the exercise of warrants
or options.
(2) Assumes 5,161,750 shares of Common Stock outstanding as of the March 31,
1998. Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person (but not those held by any
other person) and which are exercisable within 60 days from the date hereof have
been exercised.
(3) Ms. Abrahami's address is c/o 20 Passaic Avenue, Fairfield, New Jersey
07004.
(4) Mr. Grabow's business address is c/o 20 Passaic Avenue, Fairfield, New
Jersey 07004. Includes 500,000 Common Shares and currently exercisable warrants
to purchase an additional 300,000 shares of Common Stock. See "Certain
Relationships and Related Transactions."
(5) Mr. Fechtor's business address is 155 Federal Street, Boston, Massachusetts
02110. Upon the conversion of a certain note, InterEquity Capital Partners,
L.P., received a six-year warrant exercisable until October 2001 to purchase, on
one occasion, 6% of the issued and outstanding capital shares of the Company on
a fully diluted basis as of the date of exercise. Certain persons associated
with the Representative, received an aggregate 17.5% interest in such warrant,
including Mr. Fechtor, who received a 5% interest in such warrant. As of March
31, 1998, there are 7,644,250 shares of Common Stock outstanding on a fully
diluted basis, 6% of which equals 458,655 shares of Common Stock. Accordingly,
Mr. Fechtor's ownership as shown in the table includes 22,933 shares issuable
upon exercise of such warrant. See "Certain Relationships and Related
Transactions." Also includes 120,000 shares of Common Stock. Excludes 5,500
shares of Common Stock owned by Mr. Fechtor's wife, of which he disclaims
beneficial ownership.
(6) Mr. McKinstry's business address is 40 Queen Street, London EC4R 1DD,
England. Includes currently exercisable warrants to purchase 50,000 Common
Shares.
(7) InterEquity's business address is 220 Fifth Avenue, New York, New York
10001. Includes an 82.5% interest in a six-year warrant exercisable to purchase,
on one occasion, 6% of the issued and outstanding capital shares of the Company
on a fully diluted basis as of the date of exercise. As of March 31, 1998, there
are 7,644,250 shares of Common Stock outstanding, 6% of which equals 458,655
shares of Common Stock. Accordingly, InterEquity's ownership as shown in the
table includes 378,390 shares issuable upon exercise of such warrant. The
warrant is currently exercisable and expires in October 2001.
(8) Mr. Schutte address is 20 Passaic Ave, Fairfield, New Jersey 07004.
(12) Includes currently exercisable warrants to purchase 550,000 shares.
(13) Includes currently exercisable warrants to purchase 606,250 shares.
(14) Includes the shares of Common Stock beneficially owned by Ms. Abrahami, Mr.
Grabow, Mr. Fechtor, Mr. McKinstry, Mr. Schutte,
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The JMS Acquisition
On January 17, 1997, the Company entered into a stock purchase agreement (the
"Stock Purchase Agreement") with Philip Grabow ("Grabow"), pursuant to which, on
January 23, 1997, the Company consummated the purchase from Grabow of all the
outstanding shares of J.M. Specialties, Inc., a New Jersey corporation (the "JMS
Subsidiary"), in exchange for (i) $900,000 in cash, (ii) 500,000 shares (the
"JMS Shares") of the Common Stock of the Company and (iii) 350,000 warrants (the
"JMS Warrants") exercisable for shares of Common Stock of the Company (the "JMS
Transaction"). Each JMS Warrant entitles Grabow to purchase one Common Share of
the Company at the exercise price of $2.50 per share until December 31, 2000.
In connection with the Stock Purchase Agreement, Grabow and the Company also
entered (i) a registration rights agreement, dated as of January 23, 1997,
regarding the terms of the registration of the Common Shares of issuable upon
exercise of the JMS Warrants, and (ii) an employment agreement dated as of
January 23, 1997. Pursuant to the employment agreement, Grabow will serve as
President and Chief Executive Officer of the Company at an annual salary level
of $250,000 for the first year, and a minimum of $150,000 thereafter. Also in
connection with the JMS Transaction, effective January 23, 1997, Grabow was
elected to serve as a director of the Company.
JMS Acquisition Indebtedness
The payment of the cash portion of the purchase price for the JMS Subsidiary and
such working capital, was funded through the net proceeds received from the sale
by the Company of 1,500,000 common stock purchase warrants (the "Private
Placement Warrants") at a price of $1.10 per Private Placement Warrant to a
limited number of purchasers that qualified as "accredited investors" under the
Securities Act of 1933. The terms of the Private Placement Warrants are
substantially similar to the JMS Warrants.
The Chatterley Acquisition
On August 28, 1997 the Company entered into a stock purchase agreement with Yona
Abrahami pursuant to which the Company purchased from Ms. Abrahami all the
outstanding shares of Chatterley Elegant Desserts, Inc., a New Jersey
Corporation, in exchange for 1,300,000 shares of the Company's common stock.
Such stock purchase agreement was subsequently amended and Ms. Abrahami agreed
to reduce the purchase price by surrendering 200,000 shares of common stock back
to the Company.
The Purchase of the assets of Brooklyn Cheesecake Company Inc.
On March 7, 2002, the assets of the Brooklyn Cheesecake Company was purchased by
Creative Bakeries Inc. for 300,000 shares of stock and $ 45,000 in cash. These
assets were owned by the current C.E.O. Ron Schutte
ITEM 14. CONTROLS AND PROCEDURES
As of the year end period covered by this Annual Report on Form 10-KSB/A No.2,
we carried out an evaluation, under the supervision and with the participation
of our management, including our Chief Executive Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. Based on
the forgoing, our Chief Executive Officer has concluded that our disclosure
controls and procedures were effective as of the year ended December 31, 2002.
We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer, as appropriate, to
allow timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable and not absolute assurance of achieving the desired
control objectives. In reaching a reasonable level of assurance, management was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. In addition, the design of any system of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with policies or procedures may deteriorate. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected.
ITEM 15. REPORTS ON FORM 8-K AND EXHIBITS
REPORTS ON FORM 8-K
On September 11, 1997, the Company filed a Current Report on Form 8-K announcing
completion of the Chatterley acquisition.
EXHIBITS
**2.1 Purchase and Sale Agreement, dated June 2, 1995, by and among the
Company, Greenberg Dessert Associates Limited Partnership, SMG Baking Enterprises,
Inc. and its limited partners.
***2.2 Stock Purchase Agreement, dated as of January 17, 1997, by and
between the Company and Philip Grabow, without exhibits.
**3.1 Restated Certificate of Incorporation.
**3.2 Amended and Restated By-laws.
**4.1 Form of certificate for shares of Common Stock.
**4.2 Form of Representatives Warrant.
**4.3 Loan Agreement, dated July 10, 1995, by and between InterEquity Capital Partners, L.P. and the Company.
**10.1 Employment Agreement, dated July 10, 1995, by and between the
Company and Stephen Fass.
**10.2 Employment Agreement, dated as of July 10, 1995, by and between
the Company and Willa Rose Abramson.
**10.3 Employment Agreement, dated as of July 10, 1995, by and between
the Company and Maria Maggio Marfuggi.
**10.4 Employment Agreement and Consulting Agreement, dated July 10,
1995, by and between the Company and Seth Greenberg.
**10.5 Consulting Agreement, dated July 10, 1995, by and between the Company and William Greenberg Jr..
and Carol Greenberg.
**10.6 Departmental License Agreement effective February 1995 by and
between the Company and Macy's East, Inc.
**10.8 Form of Warrant for InterEquity Capital Partners, L.P.
**10.9 1995 William Greenberg Jr. Desserts and Cafes, Inc. Stock Option Plan
**10.10 Lease Agreement dated July 1995 between the Company and Murray
Greenstein.
**10.11 Lease Agreement dated January 1994 between Schnecken Baking Realty Corp. and Gerel Corporation.
**10.12 Assignment and Assumption of Lease dated July 1995 between the Company and Schnecken Baking Realty Corp.
**10.13 Lease dated April 1991 between Greenberg's 35th Street Baking Co., Inc. and Rugby Managed Asset Fund.
**10.14 Assignment and Assumption of Lease dated July 1995 between the
Company and Greenberg's 35th Street Baking Co.
**10.15 Lease dated May 1989 as modified in January 1991 between Greenberg's Triple S.
Baking Co., Inc. and Stahl Real Estate Co.
**10.16 Assignment and Assumption of Lease dated July 1995 between the Company and Greenberg's Triple S. Baking Co., Inc.
**10.17 Consulting Agreement, dated July 10, 1995, by and between the
Company and Marilyn Miller.
**10.18 Form of Indemnity Agreement.
**10.19 Sublease dated December 1995 between Timothy's Coffees of the World, Inc., and the Company.
****10.20 Lease dated March 8, 1995 between Harran Holding Corp., c/o A. J. Clarke Management and the Company.
****10.21 Agreement dated January 13, 1996 by and between the Company
and Barry Kaplan Associates.
*****10.22 Employment Agreement, dated January 23, 1997, by and between
the Company and Philip Grabow.
*****10.23 Form of Warrant for the Private Placement made in
conjunction with the JMS Subsidiary acquisition.
******10.24 Stock Purchase Agreement dated August 28, 1997, between the
Company and Yona Abrahami.
******10.25 Employment Agreement dated August 28, 1992 between the Company and Yona Abrahami.
******10.26 Employment Agreement dated August 28, 1992 between the Company and David Abrahami.
*10.27 Amendment to Stock Purchase Agreement dated March 10, 1997,
between the Company and Yona Abrahami.
*21.1 List of Subsidiaries of the Company, the state of incorporation
of each, and the names under which such subsidiaries do business.
---------------------
* Filed Herewith.
** Incorporated by reference to the Company's Registration Statement on Form
SB-2 Registration Number 33-96094.
*** Incorporated by reference to Schedule 13-D filed by Philip Grabow on SEC
File Number 005-48185.
**** Incorporated by reference to the Company's Annual Report for the fiscal
year ended December 31, 1995, on Form 10-KSB Commission File Number 1-13984.
***** Incorporated by reference to the Company's Annual Report for the fiscal
year ended December 31, 1996, on Form 10-KSB Commission.
****** Incorporated by reference to the Company's Current Report on Form 8-K,
dated September 11, 1997 and Form 8-K/A, dated November 17, 1997.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on March 31, 2003.
CREATIVE BAKERIES, INC.
By: /s/Ron Schutte
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
March 31, 2003.
Signatures Title
----------- -----
/s/Ron Schutte President, Chief Executive Officer/Director
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Ron Schutte
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/s/ Vincent Bucchimuzzo Director
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Vincent Bucchimuzzo
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/s/ Richard Fechtor Director
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Richard Fechtor
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/s/ Anthony Merante Director
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Anthony Merante
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/s/Karen Brenner Director
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Karen Brenner
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/s/Mel Foti Director
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CERTIFICATION PURSUANT TO
THE SARBANES-OXLEY ACT OF 2002
I, Ron Schutte, certify that:
1. I have reviewed this annual report on Form 10-KSB/A of Creative Bakeries,
Inc;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 16, 2003
/s/ Ron Schutte
Ron Schutte
Chairman and Chief Executive Officer